R&D Marketing

As a Procter & Gamble Co. general manager in the late 1990s, Jeff Dufresne visited a researcher whose office wall was covered by about three dozen plaques commemorating his patents. When he asked which had been commercialized, the researcher hesitated before finally admitting the answer: zero.

To avoid similar tales, P&G and some of its package-goods peers are giving senior managers, almost all of them from marketing backgrounds, more say over research and development. Under President-CEO A.G. Lafley, executives close to the company say P&G is giving business-unit managers more control over their R&D departments' budgets and focus-things about which they once had surprisingly little say.

Rival Unilever, meanwhile, is in the second year of a restructuring that has brought marketing and R&D under a common "brand development" umbrella headed primarily by former marketers. For example, Randy Quinn, senior VP-brand development for Unilever Home and Personal Care, now oversees both marketing and R&D in North America. "We've created an integrated team as opposed to a we and a they," said Mr. Quinn. "Having one leader ... really helps, as opposed to two people, who, by human nature, will always have slight differences of views."

"The prior artificial barriers have been removed," said William Schmitt, senior VP-brand development for skin care at Unilever and a chemist. He believes linking marketing and R&D creates focus on bigger, category-shaping innovations, crediting recent growth of Unilever's Dove brand to the closer collaboration.

R&D never wielded the muscle at Unilever it did at P&G, where R&D spending, at more than 4% of sales in recent years, has been about twice that of Unilever's and even further above many other competitors.

P&G has long celebrated its patent output, which exceeds 400 annually. Former Chairman-CEO Durk Jager said evidence suggests growth is directly linked to patent activity, but hastens to add: "This all depends on how well a company knows how to commercialize its intellectual property."

In one of his first speeches to employees after succeeding Mr. Jager in 2000, Mr. Lafley put it differently: "No consumer, or customer, or employee or shareholder cares about how many patents we have. ... What they care about is how many truly valuable branded products and services we can commercialize."

Mr. Lafley spent much of his early tenure vetting P&G R&D projects, weeding out the least-promising 10%. It was a big departure from past CEOs who, P&G veterans said, paid far more attention to monthly ad reels than patent filings.

DUAL REPORTS

P&G "is bringing increased emphasis to assure [innovation from R&D, manufacturing and other areas] occurs consistently under the general manager leadership," said Globel Marketing Officer Jim Stengel. P&G late last year restructured market research, which has variously reported to R&D or had its own reporting line over the years, to report both to Mr. Stengel and Global Technology Officer Gil Cloyd. But Mr. Stengel said P&G will continue to have a "significant number of people" in corporate R&D, which reports directly to Mr. Cloyd, and which works on products "more upstream in nature."

A big change has been Mr. Lafley's move to give business-unit managers more power over R&D budgets and direction. P&G research budgets were once determined almost entirely by R&D and could only be changed if a manager successfully challenged the chief technology officer before senior management. Now, general managers help shape budgets and what R&D works on.

In years past, some managers didn't even know, much less direct, what R&D did. Mr. Dufresne, now managing director of the BrandStorm unit of Northlich, Cincinnati, and the former head of P&G's juice-drinks business, recalls an epiphany during a P&G innovation fair meant for R&D staff to display technologies to people from unfamiliar parts of the company. The idea was to forge links between far-flung businesses and ideas. But Mr. Dufresne found something unfamiliar at his own R&D group's booth-a powdered fortified-drink mix he'd never been told about. He quickly identified it as the missing product in his emerging-markets strategy.

As natural as giving marketers more control over R&D might seem, the moves are controversial. Doug Hall, president of new-product consulting and software firm Richard Saunders International, calls giving marketers more say in R&D "a terrible idea" gaining momentum in package-goods companies but not technology concerns. The inherent tension between marketing and R&D is a positive, he said. "Any great breakthrough comes from this tension."

"Fitting R&D plans in budget cycles can lead to...small, incremental projects rather than breakthroughs requiring two to four years," Mr. Jager said, adding he doesn't think P&G will let that happen.

But Jeff Stamp, a former researcher at PepsiCo and General Mills, and now a consultant and professor of innovation at Miami University of Ohio said: "New ideas that get involvement from the marketing function at the earliest stages ... generally have a much higher probability of success."